Corruption

Our understanding of corruption is transformed if we start to look at it on a global level, rather than on a national level. Are the world’s ‘most corrupt’ countries those poor countries such as Nigeria or Balgladesh that are the victims of massive outflows of dirty money? Or are they those countries such as Switzerland, the United Kingdom or Luxembourg in the offshore system that handles all that stolen loot?

Organisations such as the World Bank or Transparency International have created indices of corrupt states and industries which are useful but also limited: they typically identify poor African nations as ‘most corrupt’ – while ignoring the role of the offshore financial system in encouraging and facilitating capital flight, grand larceny, bribery, tax evasion and so on. Nigerians aren’t helped much by being told that their country is among the world’s most corrupt nations. They are more interested to know where their money has gone.

Secrecy and corruption are symbiotic; the offshore system of tax havens or secrecy jurisdictions, by offering secrecy, foster corruption and must be brought to the centre of the debate. This is one reason why we created our Financial Secrecy Index, showing the other side of the coin. Our index up-ends traditional corruption indices: the most important dirty-money centres that we identify turn out to be those ranked ‘cleanest’ in more traditional indices.

We also think traditional definitions of corruption are too narrow.

At heart, corruption undermines the integrity of rules, systems and institutions that promote the public interest, and undermines confidence in those rules. Corruption is a systemic problem. But definitions such as Transparency International’s “the misuse of entrusted power for private gain,” or the World Bank’s “the abuse of public office for private gain” are usually interpreted quite narrowly, encouraging excessive focus on individuals and transactions, rather than on the system. But whole societies can become corrupted. Indeed, it is not hard to argue that the entire global financial system has become corrupted, above all by offshore activity.

Many people associate corruption closely with bribery. But we argue that this systemic aspect makes corruption a much bigger problem.  According to one measure by Raymond Baker, bribery makes up just three percent or so of corrupt cross-border illicit flows.

Traditional definitions of corruption also encourage an excessive focus on the public sector, while ignoring the private sector. Yet much of what we identify as illicit or abusive financial activity – such as market-rigging or fraud – involves corrupt behaviour in the private sphere, and is usually protected by secrecy. A “pinstripe infrastructure” of offshore bankers, lawyers and accountants who welcome, facilitate and actively encourage these flows are a central part of the corruption problem.

We think a better definition of corruption might go something like this:

“Corruption is the abuse of public interest and the undermining of public confidence in the integrity of rules, systems and institutions that promote the public interest.”